Pharoah Construction was awarded a contract to construct an interchange at the junction of two major freeways in a Canadian cityat a total contract price of $10,140,000. The estimated total cost to complete the project is $8,112,000, and it is expected to taketwo years. Using the percentage-of-completion method and the cost-to-cost basis, prepare the journal entry to recognize the revenue andgross proft for the frst year.
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Pharoah Construction was awarded a contract to construct an interchange at the junction of two major freeways in a Canadian city
at a total contract price of $10,140,000. The estimated total cost to complete the project is $8,112,000, and it is expected to take
two years.
Using the percentage-of-completion method and the cost-to-cost basis, prepare the
gross proft for the frst year.
Step by step
Solved in 2 steps
- Destiny Apartments Inc. (DA Inc.) is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. DA Inc. uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year: Year 1 Year 2 Year 3 Costs incurred each year 9,000 31,500 20,000 Estimated costs to complete 51,000 27,000 0 Billings 13,000 29,500 25,500 Collections 9,000 26,500 32,500 Required: a. Explain how the percentage completion method reduced information asymmetry and guards against moral hazard. b. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below: Year 1 Year 2 Year3 Cost incurred to date Estimated cost to complete…A&B Construction enters into a contract to construct a bridge for $1,400,000. At the outset, A&B estimates that it will cost $1,200,000 to build the bridge. Actual costs in 2017 are $540,000. Actual costs in 2018 are less than expected and amount to $600,000. The profits reported under the completed contract and percent of completion methods for each year would be: Select one: Completed Contract Percentage of Completion ○ a. 2017 2018 2017 2018 $0 $200,000 $90,000 $170,000 O b. Completed Contract Percentage of Completion 2017 2018 2017 2018 $0 $260,000 $90,000 $170,000 Completed Contract Percentage of Completion 2017 2018 2017 $0 $260,000 $123,000 2018 $197,000 ○ d. Completed Contract Percentage of Completion 2017 2018 2017 $0 $260,000 $90,000 2018 $110,000GinebraCorporation recognizes construction revenue and cost using the percentage of completion method. During 2021, a single long-term project was begun which continued through 2021. Information on the project follows: 2021. 2022 Partial billing on contract 1,000,000. 4,200,000 Accounts receivable 1,000,000 3,000,000 Construction cost 1,050,000 1,920,000 Construction in progress 1,220,000 3,640,000 What is the gross profit recognized from this long-term construction contract in year 2021 and 2022, respectively? 2021 2022 A.220,000. 2,280,000 B.170,000. 500,000 C.220,000. 1,000,000 D.170,000. 1,280,000
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- Shanahan Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $609,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $896,000. The following data pertain to the construction period. 2020 2021 2022 Costs to date $266,640 $412,080 $617,000 Estimated costs to complete 339,360 193,9200 –0– Progress billings to date 270,000 545,000 896,000 Cash collected to date 240,000 495,000 896,000 A/ Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. Gross profit recognized in 2020: Gross profit recognized in 2021: Gross profit recognized in 2022: B/ Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. Gross profit recognized in 2020: Gross profit recognized in 2021: Gross…CopBlossom Construction Company has entered into a contract beginning January 1, 2025, to build a parking complex. It has been estimated that the complex will cost $606,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $896,000. The following data pertain to the construction period. Costs to date. Estimated costs to complete Progress billings to date Cash collected to date (a) Your answer is correct. 2026 $266,640 $412,080 339.360 193,920 Gross profit recognized in 2025 2025 Gross profit recognized in 2026 Gross profit recognized in 2027 270,000 240,000 Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter O. Do not leave any fields blank.) $ $ $ 2027 $617,000 545,000 896,000 495.000 896,000 127600 -0- 69600 81800 SU
